House of COMMONS









Thursday 29 January 2009




Evidence heard in Public Questions 1 - 95




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Oral Evidence

Taken before the Public Administration Committee

on Thursday 29 January 2009

Members present

Dr Tony Wright, in the Chair

Kelvin Hopkins

David Heyes

Mr Ian Liddell-Grainger

Julie Morgan

Mr Gordon Prentice

Mr Charles Walker



Examination of Witnesses

Witnesses: Ms Ann Abraham, Parliamentary and Health Service Ombudsman and Mr Iain Ogilvie, Investigation Manager, gave evidence.

Q1 Chairman: Let me welcome Ann Abraham, the Parliamentary and Health Service Ombudsman, and Iain Ogilvie, the Investigation Manager at the Ombudsman's office. It is a great pleasure to have you along. We had hoped not to see you again on the Equitable Life issue, and I am sure you hoped not to be here again, but here we are. We are now in the position of responding to what the Government has said in response to your report. Do you want to say something to kick us off?

Ms Abraham: If I may. I do not usually go into lengthy opening remarks but if the Committee would bear with me I would like to say something to start off. I have given you a memorandum, not a hugely lengthy one, and I am happy to add to that if that would be helpful either today or in due course. The memorandum I have given you tries to do three things: to summarise the Government's response very, very briefly, to set out some initial observations from me, and to highlight some issues which, it seemed to me, the Committee might be interested to pursue. I am not going to read the memorandum but I would like to try and pull out the issues as I see them and then make some observations. If I could start with the issues, it seems to me there are three issues arising from the Government's response which the Committee might be interested to pursue. The first is that the Government has rejected findings of maladministration and injustice by the Ombudsman. The second issue is the question of whether the Government has given cogent reasons for that rejection. I am not persuaded that it has and there are a number of reasons why I say that. I think the Government's response provides insufficient support for the rejection of my findings. It is strong on assertion, short on facts. I think the response fails to address the basis on which I came to several of my findings. Perhaps another way of saying that is the response says that I said something different to what I actually said and then says it disagrees with something I did not say. It also begs a rather larger question as to what the purpose of prudential regulation was supposed to be. The Government appears to be suggesting that whatever the regulators had done it would have made no difference to the events which followed. Frankly, I find that astonishing. The third of the issues, as I see it, all relate to this alternative proposal. It seems to me the alternative proposal to the one that I made about how to provide remedy in relation to a compensation scheme has a number of issues in it to be resolved. I identified four, and I go into more detail in the memorandum: there is no detailed timetable; there is independent advice but no independent decision maker; there is no definition of this phrase "disproportionate impact"; and then there is this requirement for Sir John Chadwick to assess what proportion of the losses I have identified, and the Government has accepted, could be attributed to the actions of the Society. I will come back to that in a moment. If those are the issues, what are my observations about the Government's response? First, I must say that I welcome the acceptance of some maladministration leading to some injustice and the Government will take some action. I welcome the fact that they have apologised; apologies are important. That said, it seems to me that overall this is an unsatisfactory response. I am disappointed to see the Government picking over and re-interpreting my findings of maladministration and injustice, re-arranging the evidence, re-doing the analysis and acting as judge on its own behalf. We have been here before and, as you say Chairman, I had hoped not to be here again. It seems to me the Government did not need to do that. It might have said "We do not see this in the same way as the Ombudsman sees it, but out of respect for the constitutional position of her office, we will accept her findings of maladministration and injustice." The Government could then have gone on to consider the question of remedy. It could then have brought into play legitimate considerations of public policy and public purse. Can I move on, as I conclude, by saying what I think are, and are not legitimate considerations? First, affordability, the cost to the public purse, seems to me to be a perfectly legitimate consideration, what is not legitimate is to create a self-standing concept of disproportionate impact. Secondly, the question of whether the taxpayer should ever pick up the tab for the consequences of regulatory failure seems to me a perfectly proper debate to have. What I find more difficult to understand is if Parliament had indeed, as the Government says, always considered that regulatory failure should have no consequences in terms of remedy, or that regulators should always be immune from independent scrutiny or challenge, then why were the Prudential regulators in the period before 2001 not given statutory immunity or removed from the Ombudsman's jurisdiction before now? Why did the Government not say all of this much sooner either in its response to my consultation in 2004 when I consulted on whether to conduct a further investigation into Equitable Life, or in its very substantial response to the complaints at the beginning of the investigation. All of that is published in the report itself in Part 4. If the Government had said these things at the outset, I might never have embarked on this investigation or at least we could have had the debate, and Parliament could have had the debate, much earlier. The last thing I want to say is what I believe is a complete red herring in the Government's response, and that is the task which Sir John Chadwick has been given to assess the proportion of losses which can be attributed to the maladministration accepted by the Government, the actions of Equitable Life and its advisers. As far as the injustice or, if you like, losses, which I have identified in my report is concerned, assigning relative culpability between maladministration and the actions of others is unnecessary. The remedy I recommended was for injustice resulting from maladministration and not for anything else. Relative loss, as I explained in my report, already excludes other causes and the Society cannot be held responsible for the failures of the regulators. I can help Sir John with that part of his task. The answer is that none of the injustice which I have found can be attributed to the actions of Equitable and its advisers; they were not the subject of my investigation. I could say more, if you wish, about Lord Penrose's Report and the extent to which it is relevant to any of this debate but I will leave it there for now and Iain and I will be happy to answer any questions.

Q2 Chairman: Can I pick up one thing you said there? You said if the Government had said certain things years ago you might never have embarked upon your investigation. Say again, what things might they have said which would have prevented you from embarking on the investigation?

Ms Abraham: They could have said, and indeed Parliament could have said and indeed as is now argued in the Government's response, that regulatory failure should never result in the taxpayer having to pick up a bill for maladministration. They could have said that in law, because they could actually have taken regulators generally, or these regulators, out of my jurisdiction. Parliament could have done that years ago and these issues have been running for some years.

Q3 Chairman: That was the point they put to you in the course of your investigation which you looked at and rejected.

Ms Abraham: Because Parliament has never made that decision I am saying that it is a perfectly legitimate decision for Parliament to make, but it has not made it and therefore we are where we are in terms of bodies in my jurisdiction. What I am saying, in response to a view that whether or not those bodies are in my jurisdiction, there is a certain category of injustice flowing from maladministration, when that maladministration is regulatory failure, that the Government will never pay compensation. If they had said that when I said "Shall I do an investigation into these issues?", I would have said what would be the point then if I were to find injustice flowing from maladministration. The Government has already said there will be no remedy, so the only point would have been for me to do the investigation and put the facts into the Parliamentary and public domain. It would have been a factor in my consideration is what I am saying.

Q4 Chairman: In a sense this is not where we are at, is it? The Government has not said, as it tried to say during the course of your inquiry when responding to some of your emerging findings, what you just said "We do not compensate for regulatory failure. That is what the courts say, that is what Parliament intended and we do not do it." In fact in this case they have said that is the position but in this particular case, because of what the Ombudsman has said, we will have some sort of scheme so it is not quite like that, is it?

Ms Abraham: I am not entirely sure whether it is like that. That argument about the special nature of regulation and remedy for regulatory failure is still sitting there as an argument that should be, and will be, called into play. I think much of the argument that was made in the course of the investigation was much more around the way the courts have viewed these issues than Parliament has viewed these issues and I dealt with that in my report. I am not sure I share your confidence, but I could be wrong, that the Government has said that Parliament has said this about remedy for regulatory failure but actually we put that to one side now as Sir John Chadwick goes forward and does his work.

Q5 Chairman: This is a more complicated response than the last big issue we had with the Government, which was the occupational pensions issue, and you were rightly incensed by the fact that the moment your report appeared, the Government instantly dismissed it without any serious set of reasoning. In this case you have had a period of consideration producing a rather detailed Command Paper that, whatever else you might say, does justice to what you said. We are in different territory here, are we not?

Ms Abraham: I am not sure. We are in different territory and I think it is entirely right, and I welcome the fact, that there has been, I believe, proper consideration of the report. I think the tone of the response is respectful but I am not so sure the content of the response is respectful.

Q6 Chairman: You touched on this in your remarks. Could the Government have said the things it said now in its response to you at a much earlier stage when it saw what you were recommending? At that point it challenged this question that we have talked about, which is the whole business about compensating for regulatory failure. Presumably it would have been possible, would it not, for it to have gone through each of your sets of findings and recommendations and interrogated them in the way that it does now in its mature response?

Ms Abraham: What I would say is I think the Government did do that in the course of investigation but they just said different things then to what they are saying now.

Mr Ogilvie: They did, at the end of the investigation, seek to persuade us that in respect to each of the ten findings there was no basis for any of them and they gave reasons, 500 pages of reasons, for their view on that. They take a slightly different view now on whether maladministration occurred so they are saying something different to us now but there is a similar approach they have taken.

Q7 Chairman: When they produced their response, in a sense, you had had these arguments with them anyway.

Mr Ogilvie: We had assessed their response and in Chapter 10 of Part 1 we set our response to their response.

Q8 Chairman: I wanted to get on to this because this matters in terms of the position of the Ombudsman and the relationship to Parliament and everything as you say in your memorandum. There are some fundamental issues here and you mentioned this in what you have just said. Because this has now been tested in the courts, we are in a slightly different position than perhaps we were before in that we now know that it is possible for governments not to accept what the Ombudsman says as long as they do it for cogent reasons. Indeed, Sir John Chadwick himself by one of these quirks is part the man who made the pronouncement. That is the territory we are in. Of course the question then is you may disagree with what the Government said, you may take a different judgment - and there are judgments to be made here, which you concede in your memorandum, that no one knows what would have happened if what did happen did not happen, if you see what I mean - but as long as the Government provides a kind of cogent set of arguments in relation to the various findings, even if you do not agree with them, does that not meet the cogency test?

Ms Abraham: I do not think it is as simple as that and I do not think that is what Sir John or the Court of Appeal Judges said in their judgment on the occupational pensions' case. It seems to me that the Government's speculation as to what would have happened cannot simply be substituted for, if you like to call it, my speculation or my view on the balance of probabilities about the consequences of this maladministration. It is not simply a question of the Government rejecting my view and preferring its own. I was looking up the quote in the judgment itself: "The Secretary of State acting rationally is entitled to reject a finding of maladministration and prefer his own view but it is not enough that the Secretary of State has reached his own view on rational grounds. It is necessary that his decision to reject the Ombudsman's findings in favour of his own view is itself not irrational having regard to the legislative intention which underlies the 1967 Act. To put the point another way, it is not enough for a Minister who decides to reject the Ombudsman's finding of maladministration simply to assert he had a choice. He must have a reason for rejecting the finding which the Ombudsman has made after an investigation under the powers conferred by the Act. The question then is not whether the Government body itself considers that there was maladministration but whether in the circumstances the rejection of the Ombudsman's finding to this effect was based on cogent reasons." I have talked about re-arranging the evidence and re-doing the analysis but I am not persuaded by that. I have now had time to look at it so I do not think it is just about can he construct an argument; it is can he construct an argument in the constitutional context that we have here, which is the Ombudsman has done a four-year investigation and these are the conclusions that she has reached. As you know, I have far less difficulty with the Government taking a different view about an appropriate recommendation for remedy. As I said in my introductory remarks, it was absolutely open to the Government, it seemed to me in these circumstances, to recognise that we were probably never going to agree about findings of maladministration and injustice but it is the Ombudsman's role to do that on behalf of Parliament, and then to move on to the whole question of remedy. I proposed a remedy. The Government could have proposed a different remedy with those public policy considerations actually as the backdrop to that. That seems entirely cogent and entirely reasonable but it is the picking over the findings that I have trouble with.

Q9 Chairman: We have talked about this before but I am doing it openly. We have to think our way through in a somewhat altered context in which we have this conversation than we once did. In view of what has happened it is harder to make a case that the finding should automatically be accepted by government that that is indeed the constitutional position. Now we probably have to amend it and say the presumption should be that the findings are accepted because of an independent investigation set up by Parliament, but it is not incumbent on the Government if they can find cogent reasons why they should accept. Their argument would be in this case we have gone to considerable lengths to look at each of these findings and in a rather elaborate way we have tried to distinguish those where we think there was maladministration and accept that and those where think there was additionally injustice and accept those. Whether you think that is good enough or not, and obviously you do not because otherwise you would not have made the report you did, but I suspect this Committee, if it wanted to, could assemble a little panel of external commentators who are quite happy to say that they thought the Government's reading of these things was probably right; indeed we have had some distinguished people already saying something of this kind. The idea that these are not cogent reasons is quite hard to sustain. If it passes the cogency test, although we may dissent from them, I am trying to elucidate where we think we are in terms of this constitutional position.

Ms Abraham: I had hoped and expected that you would not want me today to go into a huge amount of detail pouring over the individual findings and the individual responses. We can do that at another time and we can send you whatever material you need. For me there are a number of things which go to the cogency question. One of them seems to me to be if what you do is re-present the finding to say something different to what I said and then you disagree with it then that is a flawed approach. There are, I think I can safely say, several examples of where we believe that is what is done here. It seems to me that actually there are very, very complex and detailed arguments that could be had about this which I think all of us had hoped would not find themselves in a court of law. I do not know what any of the parties here feel about the cogency of the arguments. What I am saying is I do not think it is as simple as you present it and I do not think it is simply a matter that the Government has made some cogent arguments and that is it.

Chairman: As you said, that is quite a fundamental issue we have to think our way through. We are now going ask more particular issues.

Q10 Mr Walker: You obviously feel very strongly about this and rightly so. Do you feel that the Government's response has undermined the position of the Ombudsman and your position?

Ms Abraham: I have heard this said and it would be easy to say of course to that but actually, in a strange sort of way, I do not believe that to be so. I suppose it is about the extent to which this one case weighs against the hundreds and thousands of cases that we are dealing every day where the Government and the public bodies and the National Health Service are saying "Yes, of course, Ombudsman, absolutely. How do I provide the remedy?" I, and my office, have to balance this against the fact that in 99.9 % of cases the Ombudsman's findings of maladministration and injustice are accepted and our recommendations for remedy are complied with. If that were not the case, then I would be seriously concerned. In the wider Ombudsman community, and I talk to older and wiser heads than mine who have been around this world a long time, what they say is if you always make recommendations that bodies in jurisdiction comply with you are probably not doing your job properly. There is something about a recognition that from time to time there are going to be big cases which raise big issues where there are big battles. I have been doing this job for over six years now and there have been some big battles but there have been a huge number of cases which have gone through with no controversy whatsoever.

Q11 Mr Walker: There is a difference in the use of language between the Government disagreeing with you, which is perfectly legitimate, and then a government reinterpreting your findings which sounds far more malign and malevolent.

Ms Abraham: I do not think it is malign or malevolent. I would say genuinely that my engagement with the public bodies, and with the Treasury in particular, throughout this investigation has been courteous and respectful of the role. I have not detected any malevolence whatsoever. I have not detected any intention to undermine the role of the Ombudsman. There has been a recognition that this is a very difficult case which raises very big issues and that has been clear in the Government's response. They have engaged with us. They have not made it easy but it is not their job to make it easy. They have argued their case and they have done it with respect for the office. I would agree with what the Chairman said previously that this is a very, very different sort of dialogue to the one we had over occupational pensions. The dialogue we had over occupational pensions took us to a different place. I am not saying it is a satisfactory place but I am certainly not saying that I feel that there is any attempt to undermine my office.

Q12 Mr Walker: Where to from here? You gave a very strong and powerful opening statement. You are clearly in disagreement with the Government's position on this. Where does Ann Abraham and her group of staff go from here?

Ms Abraham: In terms of the investigation and the report, our job is done. As I have said in my memorandum at the end I talk about next steps. I have said I am happy to provide further evidence and assistance to the Committee on these matters. We will continue to do what we can to assist those of the Society's current and former policyholders who complain to us although we now have a limited role and may not be able to help them further. If Sir John Chadwick would find it helpful, we can provide what assistance we can to him. What I have said is it did seem to me, and I do not know to what extent it was noted at the time, but the report I laid in July was not laid under my powers under Section 10(3) of the Parliamentary Commissioner Act because I did not know at that time whether I had found injustice which I did not consider would be remedied. It did seem to me that I needed to reflect now on whether I should do a short follow-up report now I have the Government's response just making it clear, in more detail than I have been able to do this morning, that it does now appear to me that injustice has been caused in consequence of maladministration and that this injustice has not been, or will not be, remedied in terms of the Act. That would then give the Committee and Parliament the detail to support what I have said this morning.

Q13 Julie Morgan: I wanted to go on to more of the details of what the Government is actually proposing. Do you think it is possible to identify groups of policyholders who have suffered disproportionately?

Ms Abraham: It may be possible; I just do not think that is how it should be done.

Q14 Julie Morgan: What do you think about the Government appointing Sir John Chadwick in this sort of way?

Ms Abraham: As I said in my opening remarks, I made a very specific proposal for what the characteristics of a compensation scheme should be, how that should be administered and the timescale for it. I said specifically that there should be independent decision making. I have absolutely no reason to suggest that Sir John's advice will be anything other than independent but he is in an advisory capacity; he is not the decision maker.

Q15 Julie Morgan: You mentioned a timescale. I think you said in your report that it should be done within two years.

Ms Abraham: I said that a compensation scheme should be set up within six months of a decision to set it up and it should complete its work within two years.

Q16 Julie Morgan: What estimate could you make of a timescale now?

Ms Abraham: I cannot make an estimate of the timescale; I simply cannot.

Q17 Julie Morgan: You have not heard any indication from the Government about any possible timescale.

Ms Abraham: I have not heard anything the Committee has not heard and I suspect the Committee may have heard more than I have.

Q18 Julie Morgan: Do you feel that the policyholders are really in limbo at the moment?

Ms Abraham: I would not say that. Sir John has been given terms of reference. I have identified in my memorandum and in my opening remarks the issues that, it seems to me, need to be resolved in order for him to be able to get on and do his work, but I would not say in limbo.

Q19 Kelvin Hopkins: What is your view of the Government's repeated argument that the failure of financial regulators should never or not give rise to an entitlement to receive compensation?

Ms Abraham: I do not have a view on the substantive issue. I think that is absolutely properly a matter for Parliament to debate and entirely legitimate for government and Parliament to have a view on. What I am saying is that does not sit with the jurisdiction that I had in relation to this investigation and indeed I do have in relation to a number of regulatory bodies that are within my jurisdiction now. That would be something that Parliament might well have a view on and is entitled to have a view on. If I had a view it would be a personal one and all I could do is assist Parliament in that debate from my evidential experience.

Q20 Kelvin Hopkins: I am a Member of Parliament and I have a very strong view that if a regulator is not ultimately responsible financially as a financial regulator then possibly regulation is not worth the paper it is written on. Is that not a fair view?

Ms Abraham: I suppose I would broaden it out and say if there are no sanctions or no redress for public service failure then the drivers that would improve public service failures seem to be significantly weakened by that. That applies to regulation as much as it does to the work of the Child Support Agency or the National Health Service.

Q21 Kelvin Hopkins: If the Government is morally, if not legally, responsible for financial compensation, if they are, then they put pressure on their regulators to do a very good job to make sure that the organisations do not go wrong. If that pressure is taken away, the regulators play golf and say the Government is not that bothered and they have light touch regulation, they will not pay any money anyway so we will play golf instead. Clearly they did not do the job and that is why they are in the dock now. Is that not fair?

Ms Abraham: I am not sure about the golf. I would turn it around and say, which I have said before this Committee in the autumn when we discussing these issues, that it has been argued that if the Government has to pick up the tab for regulatory failure then actually that will play against good regulation but I would say very strongly that it plays in the other direction because it seems to me that regulation, like any other public administrative task or public service, should work well and there should be clarity about what people can expect. It goes to my principles of good administration. Some of this is around what people can expect from a regulator but much of the Equitable investigation was around what the law required the regulator to do. I have said again we have set the bar pretty high here. There is a debate to be had is all I am saying. If I were a Member of Parliament, which I am not, I probably might be more inclined to your point of view than the other.

Q22 Kelvin Hopkins: The Government moved regulation for Equitable Life from the DTI to the Treasury and then to the FSA and the FSA was specifically taken away from your purview and not made legally responsible. Was that not the Government saying we are going to have regulation in name but not in practice? They got out from under because they possibly knew things were going to go wrong and they did not want to have this responsibility, but for much of the period we are talking about it was fairly direct government responsibility.

Ms Abraham: I was not around at the time of that debate. It seems to me there was a proper debate about the immunity that was brought in under the new arrangements and that was argued through and debated in Parliament and that is what Parliament decided. I do not think it was a question of getting out from under. I think it was thought through in terms of what was appropriate in relation to this new body. Not everybody is within my jurisdiction but I know there are debates about whether the Parliamentary Ombudsman should have complete jurisdiction for every public body. Those are matters for Parliament to decide and they are not for me. I do not think it was a question of somehow seeing that things were looking bad and trying to get out from under. I have seen no evidence that was the case.

Q23 Chairman: On Kelvin's question, there were two underlying strands to the Government's position: one is the one they put to you as your report was being done, which is the one you have been discussing now, which is that the public interest is in not compensating for regulatory failure which they argued strongly and said was the legal position. In their report, responding to your report, that argument seems to have fallen away; it is given as an assumption but it is no longer the real basis on which they are objecting to what you say. The second strand is the one that is now adopted, which is at the time the regulatory environment in which we lived, which is the one you are examining, was, in their words, "reactive and non-intrusive". That seems to be the philosophical basis for the whole of their reply and you have to understand that was the context so that even if you explore liability in the sense of a period before immunity had kicked in it was such a lax passive regime that, in a sense, you should not have expected more of it.

Ms Abraham: If that is the Government's position then it is a self-defeating one because it completely endorses what my report says with one omission. We have talked again about this: was this is a failure of the system or a failure to operate the system? What I have said is it was the latter because actually the law required the regulators not to be reactive and passive and complacent. The law required considerably more than that and the regulators failed to operate the system as they were required to do. Again, and I think I have said it in this room before now, one of the exchanges that I had with the public bodies in the course of this investigation was I was being told that the regulatory regime, as I had articulated it, would not be recognised anywhere in the world. My response to that was that may be so but it is the law. If the argument is that actually it was a reactive and non-intrusive regulatory activity that was going on here, I do not disagree with that, the problem is that was not what the law required; indeed it was not how, at the time, they said they would operate the system.

Q24 Mr Prentice: We all despair that a line cannot be drawn under this business but, on the constitutional points that Charles raised, you told us that in your dealing with the Government they showed respect for the Office, they were polite, as they would be, but in your memorandum, which is pretty trenchant, you say there is no common understanding between the Government, the Ombudsman's position and presumably what Parliament intended when they set up your office. That must concern you.

Ms Abraham: I am trying to remind myself what I did say.

Chairman: Something very similar to what Gordon has just said.

Q25 Mr Prentice: "The system will only work if the Parliamentary Ombudsman and government departments share a broad common understanding of what maladministration might be and who should properly identify it. The Government's response indicates that they do not share such a common understanding."

Ms Abraham: Without being flippant, I was quoting the Committee and agreeing with it so we are in agreement.

Q26 Mr Prentice: When you said in your memorandum the Government's response is partial and you said there is no mention of EC Directives, are there other instances where the Government just did not address issues raised in your report?

Ms Abraham: Yes.

Q27 Mr Prentice: Lots of them?

Ms Abraham: Yes.

Q28 Mr Prentice: On the question of disproportionate impact, and that is means testing I suppose, is this completely novel or are there other examples in the past where the remedy offered would involve means testing and people would be compensated on the basis of disproportionate impact? Do you understand?

Ms Abraham: I understand the question. I am trying to think if I have ever come across this in another case and I think I have to say I have not.

Q29 David Heyes: Starting with the point in your memorandum, you say that you would be happy to explore with the Committee and provide further written evidence about the more detailed analysis. We are expecting to get the Minister in front of the Committee fairly soon. Will it be possible for us to have some of that in time for our evidence session with the Minister? It is clear these questions that are in your mind, this unhappiness that you have described, we need to be putting that to the Minister and we need more from you. Can that be done?

Ms Abraham: Certainly that can be done.

Q30 David Heyes: Can you help us to have a flavour now? You have referred several times to the Government re-interpreting your report and then disagreeing with the re-interpretation and you have talked about points which the report does not address. I do not want you to give us chapter and verse now but can you give some illustrations of why you say that?

Ms Abraham: Perhaps I can bring Iain in to give one or two illustrations.

Mr Ogilvie: The clearest one is in relation to the decision to let the Society remain open after the House of the Lords' judgment in the Hyman case. The Government's response says that the Ombudsman did not say it was the wrong decision, it was just the why they took the decision that was faulty and, therefore, nothing really would have changed because the decision would have been the same and would just have been taken in a different way. That is not what we said. We said that they failed to take into account the interests of all policyholders. They had misunderstood their powers. They had come to a decision based on a wholly partial view of the relevant facts and the relevant law. What we did say is nobody now, ten years later, can say what would have happened had all of that not been the case but we certainly did not say the decision was right. From that they then said no injustice had flowed from that and therefore there should be no remedy for that. Had they actually addressed what we said they may have come up with a different view as to whether there was injustice and a rationale for a remedy.

Q31 David Heyes: Can I prompt a further example?

Mr Ogilvie: The information given by the FSA in the post-closure period we found to be misleading and inaccurate in places. They then go on to say in their view that while the information might have been misleading nobody really was misled. They have given no basis for that. That is not what we have said. What we said was individual policyholders were all in different positions and some of them may have had regard to that information and some of them may not and it would depend on the circumstances of each case. They have interpreted that as saying nobody suffered any injustice.

David Heyes: That helps to make the point that we need a lot more from you if we are to do our job in relation to holding the Minister to account. We look forward to some more detail on that.

Q32 Chairman: Can I come back to one area before we end, and we look forward to further evidence that you will give us in writing, and it is the sort of conversation we had before in other issues. I have a sense that you would be happier if the Government had said "We accept what the Ombudsman has said. We accept in all respects what she said about maladministration and in all respects what she said about injustice but I am afraid for public purse reasons we can do nothing about it." In a sense you gave them the option of saying that because you opened up the fact that there was a public purse consideration. Am I right in thinking that you would feel that would be a happier position to be in from your point of view?

Ms Abraham: From my point of view, yes, but I say that in the full knowledge that from the complainants' point of view clearly not. What I have found so difficult in the Government's response is this seems to me to be a rather roundabout way of getting to the same place and perhaps a less direct, less straightforward, way of getting to the same place. I have said that I have found maladministration leading to an injustice pie which is so big and that is how big it is. That is the injustice I have identified as flowing from this maladministration and that is my view. Instead of saying "This is your job. You have done a four-year investigation. We have had lots of debate about this. This is the conclusion you have reached, and we respect that, but there are public purse considerations and the Government cannot afford something this big." Government and Parliament can have that debate. No doubt there would be very strong views expressed but it is a legitimate debate. I see them, first of all, saying actually the maladministration was that not big and the injustice was smaller and then there is this disproportionate impact thing.

Q33 Chairman: Put slightly differently, the Government does refer frequently to your public purse observations. It could say, given its assessment of your report, given what it accepts and what it does not accept and given the fact it is persuaded in this case to have some kind of ex gratia scheme, that having a scheme of disproportionate impact is their way of responding to your public purse consideration. Is that not a logical argument?

Ms Abraham: I agree with you. I said the thing I find that is not legitimate is a self-standing concept of disproportionate impact. This may feel like a rather arid debate for the people who have had these losses but it seems to me it is more logical to say actually the taxpayer and the country cannot afford something that big, and therefore we have to find a way, and we need to some find criteria, to allocate what we can afford and, therefore, we will take a disproportionate impact criteria. What it does not disturb is the rationale which says the injustice is this big and therefore the remedy should match the injustice. If you then say we cannot afford that much and we have to find a way of dealing with that, that seems to me be more rational, more straightforward and easier for me to understand.

Q34 Mr Prentice: I do not know why I am laughing but it may produce a further injustice going down the disproportionate impact road because you have to do all this complicated means testing involving the company going through all those records, and your initial timetable, the timetable you wanted, is going to fly out the window and we could be here in eight years time.

Ms Abraham: I am not saying for a moment that I think that is the right criteria.

Q35 Chairman: That is the final thing I was going to ask. If you were Sir John Chadwick would you know what you had taken on? Would you have taken on something that you thought was understandable and doable?

Ms Abraham: I am not Sir John Chadwick and I find it hard to put myself in his place even having sat in his courtroom for three days. Presumably he does know what he has taken on because he is a very able man. He has a very difficult task and I do not envy him.

Chairman: Thank you very much for that. I suspect we will have further communication about all this but thank you for your evidence this morning.


Mr Charles Thomson, Chief Executive, Equitable Life Assurance Society and Mr Simon Skinner, Director Corporate Services, Equitable Life Assurance Society, gave evidence.

Q36 Chairman: Let me welcome and thank Charles Thomson, Chief Executive of Equitable Life, and Simon Skinner, the Director Corporate Services, for helping us. Mr Thomson, you were here before a little while ago. We now know more than we knew then when you could not help us very much. I wonder if you can help us any more today.

Mr Thomson: I will try. I wonder if I might take a minute before we begin. On behalf our policyholders I would like to thank the Committee for the support it gave to the Ombudsman's recommendations. You said in your report that regulation is never an easy job and mistakes, even serious ones, will occasionally be made. The real test for government is how it then responds. You asked the Government not to act as the judge on its own behalf but that is exactly what they have done. They have accepted fewer than half of the Ombudsman's detailed findings on injustice. You asked the Government not to address the issue as charity or financial hardship. You said compensation should be a matter of duty not of choice but they have decided on an ex gratia payment for hardship. You asked the Government to set up a scheme that is independent, transparent and simple but what they have actually done is to ask a judge to advise them privately on something, as yet undefined, which they call disproportionate impact and they have instructed him to ignore the Ombudsman's findings which the Government has rejected. In summary, we believe the Government's response is wholly inadequate. On behalf of our policyholders we are keen to give all possible assistance to this Committee. We seem to have a lot of common ground with you and we are pleased to be given the opportunity to speak again. We think that Parliament should not accept the Government's response to the Ombudsman's report and we hope that Parliament can find a way to influence Government.

Q37 Chairman: We understand what you say and it is helpful but the fact is we now do have a government position and some response to that position has to be worked through. What I would like to know from you is when Sir John Chadwick comes and knocks on your door, and I suspect yours will be the first door that he knocks on, and seeks to carry his brief forward what are you going to be able to say to him?

Mr Thomson: We will do whatever we can to help him in his work but our concern is his terms of reference will constrain what he can do in quite a serious way.

Q38 Chairman: He is charged with making sense of this disproportionate impact criteria and he comes to you and wants to know which of your policyholders have suffered a disproportionate impact. That is his terms of reference. He cannot go back and interrogate the argument between the Ombudsman and the Government. He has been told that he has to accept that his parameters are what the Government has said about what they accept. He has to find out who are the policyholders who have suffered disproportionate impact and he comes to ask you about that.

Mr Thomson: We will have considerable difficulty in helping him. We have the details of our policyholders. We know the policies they took out and when. We will have some other information but we do not know which of our policyholders are wealthy and which are poor. We have very many policyholders, more than half are in pension schemes and they include many people who are not wealthy, people who work for the NHS, people who work for the Post Office, and we do not have information about their private means.

Q39 Chairman: What are you going to do?

Mr Thomson: We can give Sir John the data we have but if he is interested in people's wealth then he will have to go directly to them.

Q40 Mr Walker: That is going to be fairly obscene, is it not? He may have to have the HMRC get involved. People who, through no fault of their own, have suffered significant loss as a result of this Equitable Life failing will have to list perhaps the value of their property, the value of their savings, the value of their chattels. This is really pretty unpleasant, personal, intrusive stuff, is it not? It is personal and very intrusive.

Mr Thomson: We cannot support any method that effectively is means testing for a compensation scheme that is supposed to be there to right a wrong.

Q41 Chairman: Means testing is one version of what this could mean. Part of the difficulty is we do not know what it means. It will be possible presumably to think of disproportionate impact in a way that did no involve means testing but simply involved looking at categories of your policyholders to see, in a sense, who had taken the greatest hit.

Mr Thomson: Indeed. If this was to remove the de minimus cases then that would not be something we would particularly object to because any scheme will be a complex and expensive thing and there is no great value in spending a lot of administrative money in order to give somebody compensation of 5. At that end we would have some sympathy for it but until we have defined what the relative loss caused by maladministration is, so that we can work through that with the policy records we have got, we would be struggling to actually identify which group was most likely to be affected.

Q42 Kelvin Hopkins: A simpler approach would be if the Government hinted at a ball park figure for the amount of compensation they might pay and this was just divided up proportionately according to the losses. If I lost 10 pounds I get 1p. If someone has lost 1 million they get 1,000th of that in a simple proportionate way. That would be quick and it would be sort of fair. It would not be means tested and would not require all that detailed information which would be an appalling nightmare. Is that not another possible approach?

Mr Thomson: That could be done. I was asked when I was here last did I think the six month period to construct a scheme was realistic. I still believe that is realistic. Someone needs to define what the relative losses due to maladministration are and how is that to be approached? What sort of methodology is going to be used about comparison of this company's results with other company's results? What proportion of that difference is market-related falls that are not related to maladministration? What are the impacts of the maladministration? What bits should be compensated? Design that scheme and then apply that to the data base but until that is done then the overall cost is unknown. That overall cost might not be beyond the public purse. If it is beyond the public purse then we might not be pleased but we would understand why a government then said that it should be restricted. The problem we have at the moment is, as the Ombudsman said earlier today, it seems to be being chipped away at in a variety of different ways and it seems most unlikely that ends up in a fair scheme.

Q43 Kelvin Hopkins: I would not say for a moment it should be as little as 1,000th. If it was 50/50 it would be something reasonable.

Mr Thomson: Our policyholders have waited a very long time for compensation and if they got half of what they believed they were entitled to then that would be a great deal better than nothing. If that is the all the public purse can afford then I think people would understand. At this stage I feel we are arguing about something that is unknown. The public purse may well be able to compensate fully.

Q44 Kelvin Hopkins: It could be quick.

Mr Thomson: I would like to see this being done quickly. The Ombudsman's original timetable seemed to be one that was challenging but possible.

Q45 Mr Prentice: We are having difficulty here. You said in your letter, and you may have said it earlier, that we do not know what the Minister meant by disproportionate impact. I am struggling to remember if ministers at any stage said that people of modest incomes or poorer people or elderly people should be treated more favourably than others. Can you help me here?

Mr Thomson: I do not think I can. I heard the same as you. I heard the Minister in the House and I heard the debate after that. Having heard that debate I was very unclear as to precisely what was meant. Members in the House did say means testing, and the Minister did not say this is not means testing.

Q46 Mr Prentice: The Chief Secretary, Yvette Cooper, when she spoke in the House a week or two ago said "We would expect that interpretation of disproportionate impact would include consideration of the extent of somebody's losses and how great they were as a proportion of their income, that is whether they were relying on that income or had other sources of income." That is the Government's position because it has been said on the floor of the House.

Mr Thomson: We cannot help with that.

Q47 Mr Prentice: It goes back to Revenue and Customs.

Mr Skinner: Part of our difficulty is that definition, or attempt at a clearer definition, is not within the Command Paper which is the thing against which we have to respond to which is why we have written to the Minister in the way we have trying to reserve our position. We do not know what they mean by that definition. This is something that he may be asked to consider but we do not know that is the case.

Q48 Mr Prentice: The other point that the Ombudsman made earlier about being a red herring, sorting out maladministration from market movements, that is another next to impossible job.

Mr Thomson: Yes. We have an element of surprise that the Command Paper is almost 50 pages long. Government, having seen the Ombudsman's drafts earlier on, produced a 500 page response as to why they disagreed, with a lot of where the Ombudsman was going and the Ombudsman dealt with that. What we have now got is less than 50 pages of which a very small part says Government disagrees with what the Ombudsman has found but gives very, very limited reasons. There may be cogent reasons behind that but it is not at all clear from what has been published so far. I would be very grateful if the Committee would question the Minister as to what those reasons are in detail so that we can see whether they are cogent or whether they are irrational.

Q49 Mr Prentice: That is why you said in the company's press release that the Society deplored - this is strong language - the Government's rejection of the Parliamentary Ombudsman's recommendation for those very reasons. You have been passed a ball and you cannot really run with it; you do not know in which direction you are going.

Mr Thomson: Indeed, our policyholders have waited at least eight years for something and at the end of the day, when the Ombudsman has recommended a scheme that looked open, transparent and fair the Government is saying "No, we will not give you that. We will give something that we will decide what it is and it is very likely to be a lot less." Nobody knows what it is.

Q50 David Heyes: You said that you would do everything possible to help in this situation. That was one of your opening comments. Having heard the conversation since then I am finding it hard to discover what that might be other than providing names and addresses and perhaps some policy details. That would seem to be it.

Mr Thomson: That is a fair point. The help we can give is limited. We have access to data that relates to our policyholders and we can help. The Ombudsman envisaged that a scheme would be independent and, therefore, it is arguable that we can have a very limited part in trying to produce the solution for this. In so far as we can help then we stand ready to do so.

Q51 Mr Prentice: Has Sir John spoken to you yet?

Mr Thomson: No.

Q52 David Heyes: You are obviously expecting that to happen.

Mr Thomson: I would expect that fairly soon.

Q53 Mr Prentice: Any idea when?

Mr Thomson: No, I have no idea.

Q54 Chairman: If you were simply asked a question about which of your policyholders had suffered disproportionate impact, leaving aside means testing issues, is that a question you can answer?

Mr Thomson: I do not think it is a question I can get close to answering. It depends entirely on how you see the relative loss caused by maladministration. That would then perhaps identify groups of policyholders who have suffered more than other groups and then you would have a group of policyholders that you who might look at. How you would pick individuals out of that group I have no idea.

Mr Skinner: It is worth bearing in mind that a large proportion of our policyholders who will be affected by this moved away to different organisations such as the Prudential, Swiss Re and others. We only hold a snapshot of those policyholders at that time so as to their income now we would not even begin to be able to identify that.

Q55 Chairman: You have had no conversation at all yet with Sir John about these issues.

Mr Thomson: We have not heard from Sir John yet. We have not yet approached him.

Q56 Chairman: If I was him I would come and knock on your door pretty smartly to find out what brief he has taken on and whether it can be done or not. You are saying, as far as you understand it, it is impenetrable at the moment.

Mr Skinner: He will have to take actuarial advice about what has been ruled in and what has been ruled out. If you look at what he has been asked to look at, he cannot get into the detail unless he has read considerably into Penrose which led to this report and then try to take actuarial advice. We cannot provide that actuarial advice to him if he is to be independent, I would not have thought. The only thing we can provide is the data set.

Mr Thomson: To be fair to him, the volume of reading that can be involved in this, when you consider not simply the Ombudsman's report and its many pages but the backing material, runs certainly to three figures of lever-arch files.

Mr Prentice: I am sure he is a speed reader.

Q57 Chairman: He is locked in a dark room somewhere.

Mr Thomson: I am not sure. We have not approached Sir John. I would probably regard it as appropriate for me to approach him fairly soon.

Q58 Mr Prentice: I do not want to labour the point but I want to get this on the record. There was a debate in Westminster Hall only two days ago and the Exchequer Secretary to the Treasury, Angela Eagle, said this: "I reassure members that it is only with access to Equitable's data that we can assess which classes of policyholder will receive payment under this scheme." That is complete baloney, is it not?

Mr Thomson: It seems difficult to reconcile that with some of the other statements.

Q59 Mr Walker: I would just say that the Chief Secretary came to the House a few weeks ago to announce the scheme. We are discovering that it is a very complex scheme which requires a lot of background financial checking and would take a huge amount of time and be hugely expensive. You are a man of some financial experience. If you were in the Treasury you would say "Please do not go ahead and do this because you are creating a rod for your own back." Do you think common sense may well prevail and actually the Treasury Minister may come back to the House and say "We have looked at this in greater detail and we feel there is a better way of actually compensating policyholders than the one we originally thought we were going to go with."

Mr Thomson: I hope that the Treasury will decide that there are better ways than this one. I think my concern is that Sir John will do the best job he can within his terms of reference but that is unlikely to produce a scheme that is fair, it will not be transparent and it will not give compensation to many people who deserve it. He has to ignore the findings of the Ombudsman which Government does not agree with so he has such a limited starting position.

Q60 Mr Walker: You strike me as a very sober gentleman, Mr Thomson, and that is a fairly devastating review of the scheme currently before Parliament.

Mr Thomson: We struggle to know precisely what the scheme is. We have the Command Paper and in so far as it goes, we struggle to follow the reasoning for the rejection of the Ombudsman's findings and, therefore, the reasoning behind the creation of this scheme. We believe the Treasury would be wise to consider whether a different approach is better.

Q61 Chairman: The difficulty is you talk about the scheme but in fact there is not a scheme: there is a rather vague maybe stated principle and the hope that our judge is going to convert that into a scheme. It seems to us to be a pretty mammoth task.

Mr Thomson: Indeed, and there is no timetable set for Sir John so this could be a further delay that simply means policyholders have to wait again.

Q62 David Heyes: You seem to be envisaging an in-depth renegotiation of the proposal and the way forward. That is not what I have seen here. The Government have said that this will be done independently. We will take data from you and someone else will do it. I am not sure why you seem to envisage this role where you can get involved in want might be lengthy renegotiation with the Government.

Mr Thomson: I do not expect we will get involved. I see this simply as the Ombudsman, as the Officer of Parliament, has produced her report. Parliament has that report and Government has said despite that report we intend to do such and such and I now see this as an issue between Parliament and Government as to whether that approach is accepted or not. What I am saying is that on behalf of our policyholders, I hope that Parliament will not accept the Government's approach because I do not think it will result in a fair result.

Q63 David Heyes: But you see a role for yourselves.

Mr Thomson: Our role is simply to provide any help we can for Sir John or whoever is involved in producing this. We have data that we will want to share with someone who is trying to produce restitution but our role will be quite limited in that.

Chairman: That is probably as far as we can go today. You have been as helpful as you can and have said some very interesting things. We are grateful to you for coming along and we may have further contact.


Memorandum submitted by Equitable Life Members' Action Group


Examination of Witnesses


Witnesses: Mr Paul Braithwaite, Mr John Newman and Mr Colin Slater, Equitable Life Members' Actions Group, gave evidence.

Q64 Chairman: Again let me welcome the representatives of Equitable Members' Action Group, EMAG. We had a conversation before with you on what the Government was going to say and we wanted to hear from you afterwards. I know that you have done a paper, we are grateful for that. Do any of you want to say anything by way of short introduction?

Mr Newman: I would like to start by thanking you and thanking PASC for the task of producing such a cogent, compelling report in December and so expeditiously. I thank you again on behalf of our members and myself. I was extraordinarily impressed. Of course, I did not agree with everything but that is life. Again, the Government is employing salami tactics on us. There is a big problem out there like a salami and they are cutting it into very, very small and little pieces to digest it and, I am afraid, I find it totally unacceptable. Personally, I have written to the Minister to reject the apology and to say it is totally inadequate. Today I would like not to try to shoot you as the messengers because you are not, you have been so helpful to us. I would like to hand over to my colleague, Colin Slater, to talk through some of the numbers of the issue. I want to pick up one point. There was a reference going to HM Revenue & Customs to find out means of individuals. This would be a totally irrational response because most pensioners and most of the pensioners involved in this disaster do not file tax returns because they have not got enough income. We are dealing with hardship, we do want to rectify that. They want justice, but recourse to HM Revenue & Customs would not work.

Mr Slater: Good morning. I think the best thing I can do this morning is try to provide some guidance for the Committee on the cash effects of what the Government has responded. I will try and keep my comments fairly short.

Q65 Chairman: If you would, please.

Mr Slater: First, I would like to mention the rate of growth of Equitable Life. In 1990 it was a very small insurance company with assets of about 5 billion. Over the decade of the Parliamentary Ombudsman's review it expanded its business aggressively. We now know it did so on the back of numbers that were extremely dubious and which were approved maladministratively by the regulators. By the time we get to 2000 that 5 billion has grown to 30 billion, so it was quite a large insurance company. In short, during that decade the company expanded its business six times, that is a huge rate of growth. In doing so it encouraged about one and a half million people to invest their money, mostly pension money, into Equitable Life's with-profit policies. Those are the important figures: there are one and a half million people and 30 billion. The Parliamentary Ombudsman made ten findings of maladministration against various regulators. However, as I am sure you know, maladministration on its own is not enough to justify the payment of compensation. For compensation to arise the Ombudsman also has to determine that the maladministration led to injustice. From a practical point of view, for compensation to be substantial that injustice needs to apply to the majority of policyholders, not just occasional ones here and there. Once you eliminate the matters that do not lead to injustice, or do not lead to injustice to substantial numbers of people, you boil down to four issues, what we call the "money findings". The first three we can take conveniently together because these are the question of discounting the Society's mainstream pension business by something like half from 1990 onwards, the second one is the lack of any provision for guaranteed annuity rate liabilities from 1993 onwards and then there is the matter of Standard & Poor's mistaken AA rating of the Society from 1995 onwards, which the regulators knew about but did not do anything. The Parliamentary Ombudsman's cumulative findings in relation to those three matters mean the Society's regulatory returns were grossly misleading from 1990 onwards. Therefore, the Ombudsman puts a start date for injustice at 1 July 1991 which was when the Society's 1990 regulatory return was filed. In doing so she includes as potential subjects for compensation all those million-plus savers who entrusted their money, mostly pension money, to Equitable Life after 1 July 1991. The dates are important. The fourth finding relates to the dreadful business of the financial reinsurance contract where the directors of the Financial Services Authority simply lied to allow Equitable Life to declare its 1998 bonus and to carry on in business. In this instance the Parliamentary Ombudsman found maladministration leading to injustice in respect of all of those who joined the Society or paid a premium that was not required under contract from 1 May 1999. That is another important date, 1999. If you look closely at the Government's written response to the Parliamentary Ombudsman's report, then you will see that, while it has accepted all the findings of maladministration relating to those four issues, it has rejected the findings of injustice in respect of the first three, the earlier ones from 1990, 1993 and 1995. The effect of that is to move the start date for eligibility for compensation from 1 July 1991 to 1 May 1999, so we are talking about almost eight years. Under the Treasury's response only those who made contributions after 1999 and before, of course, the Society closed for business on 8 December 2000 will be eligible for compensation. It is this movement of the start date by eight years out of the possible ten that excludes most policyholders from receiving any benefit. You do not need to be an actuary to see that if you take eight years out of ten from the possible compensation period, you make a very big hole in the numbers. We have done the sums and we reckon that reduces the compensation by 90 %.

Q66 Chairman: I would quite like to hold you at that point, do you mind?

Mr Slater: Please.

Q67 Chairman: This is all extremely helpful, but some of it is written down in detail in this memorandum you have given to us. That is extremely helpful to us, but I think the conclusion you have arrived at now is probably the one we would like to talk to you about unless you have got anything else that really bears on that?

Mr Slater: Yes, I am nearly finished. As far as Sir John Chadwick's review is concerned, as certainly Charles Thomson and the Parliamentary Ombudsman have said, he is very firmly instructed to consider only those findings that the Government has accepted, and they have not accepted the expensive ones. When he comes to do his calculations on relative loss, appropriate proportion, the State of the public purse and the disproportionate effect, whatever that may mean, he is only going to be talking about ten per cent of the money.

Q68 Chairman: I think what is interesting is that it was only EMAG which was giving us some sort of hard-ish figures before we had the Government's response. What I am interested in is the exercise you have done by identifying what you call the "money findings" and then comparing what the implications of the Ombudsman's money findings are with what the Government has said.

Mr Newman: Chairman, to come and talk about monies, in paragraph 519 of the Command Paper the Treasury say, "We haven't been able to estimate the cost". Any simpleton will say, "You have got to ask", and the Treasury has not asked either the company or us what the cost is or done an adequate investigation in the six-month period. That is not reasonable. We have done an estimate, and Colin will talk it through, of course we have, but it is not reasonable of the Treasury and the Government not to ask the question.

Q69 Chairman: What I am identifying, and you are being extremely helpful on this, is we have just had a conversation with the company when they were not able to help us in a way that you have been able to do. You have told us that going through this money-finding exercise, comparing the Ombudsman with what the Government has said, because you have identified this problem about start dates and therefore the exclusions that come in because of that, you know on the basis of having done that exercise that 90 % of policyholders are going to be excluded.

Mr Newman: Chairman, the cogent reason from the Treasury is to try to exclude most policyholders. Colin, would you like to add?

Mr Slater: I think that is pretty clear.

Mr Newman: It is a cogent reason. They have said, "", and then it has tried to trim - the salami tactics - every policyholder out of the way.

Q70 Chairman: I am sorry to keep on at this, but this is interesting for us. If I say to you - which I have tried to ask other people - "Can you tell me who the ten per cent of people are going to be?", if you were Sir John Chadwick and had been told to go away, apply the principle, do your exercise and find only ten per cent of people, you would be able to do this quite readily.

Mr Slater: The only finding of maladministration leading to injustice which has real money attached to it, is the financial reinsurance and the start date for that is 1 May 1999, that is what the Parliamentary Ombudsman says. She says anybody who invested after that date who was not required to do so should be considered for compensation. That is the only period that
Sir John will have to look at. It is only a year and two-thirds over the whole saga of Equitable Life in which the Parliamentary Ombudsman found maladministration over a decade.

Q71 Chairman: Ironically, although I have been suggesting to witnesses that Sir John's task was going to be difficult and elusive, if not impossible, you are saying, "Actually, it is very straightforward".

Mr Slater: I think as far as identifying the potential claimants it is very straightforward indeed. I am sure Mr Thomson could give you a list of people who invested money after 1 May 1999. I am not saying Sir John's task is easy, quite the reverse. How on earth he is going to take into account the requirements of the public purse I really do not know. Like the Parliamentary Ombudsman, I thought that was the Government's job or Parliament's job. As far as the disproportionate effect is concerned, I think it is barmy, not to put too fine a point on it. In this country we have one system of dealing with people who fall on hard times, it is called social security. We have another system for dealing with people who make too much money, it is called income tax. Income tax has been going for 200 years, it has been developed over that length of time and it is an enormously complex system. The same can be said of social security, about a hundred years. We have had hundreds of years' worth of experience to develop those systems and the Government has said to Sir John Chadwick, "Here is Equitable Life. Go away and develop a system of income tax and social security just for Equitable Life", it is nuts.

Q72 Chairman: You are saying it is barmy but doable.

Mr Slater: No, I just said it was barmy. I certainly did not say it was doable.

Q73 Chairman: I thought your analysis had brought us to the conclusion that you could identify the categories.

Mr Slater: You could if you spend 200 years running it like income tax.

Q74 Mr Walker: Chairman, I am sorry, I have got to go very shortly but I want to get something off my chest for the record; I am not sure it is going to advance the discussion very far. Ultimately, this is about justice and justice being seen to be done and justice actually being done. What concerns me is that we now have a banking sector that is largely owned by the State, but many of the main players within that sector are still going to receive salaries, supported by the taxpayer, in excess of seven figures this year, next year and the year after. Surely, as Parliamentarians, if we are interested in natural justice we must ensure that policyholders in Equitable Life who have been disadvantaged by the regulatory system are compensated for their losses because, as you have so eloquently put over the time that I have got to know you, we are not talking about multimillionaires in the main here. We are talking about people who were professional and put money aside so they would not be a burden on the State in their retirement. That is the case in reality, is it not?

Mr Newman: Yes, I think it is. Could I add one thing here. One of the things about the rejection of the apology is to focus on the Civil Service. Not one person has been disciplined within the Civil Service for their maladministration to the best of my knowledge and belief. The Financial Services Authority: we had Sir Howard Davis here as a witness before Christmas who has made no comment or apology for his maladministration on the issue of misleading information. Now they are not suffering a pay cut, they are still receiving six-figure salaries. I think we have got to have a fundamental look at the morality of our pay policy in the private sector and the public sector when there has been maladministration and proven maladministration as such.

Mr Slater: Could I also say something. I agree with what you say as regards the policyholders of Equitable Life. We are talking about a million people in group schemes whose average fund was 4,000. That is not a lot of money, certainly not for a pension fund. We are talking about 500,000 people who invested directly whose average investment was 46,000. We are not talking about fat cats. The Treasury spin doctors would like you to talk about fat cats, but we are not talking about that.

Q75 Mr Walker: Actually, even if you do have the odd fat cat, they are entitled to justice as well.

Mr Slater: Absolutely, quite so.

Mr Newman: We do not discriminate.

Q76 Mr Walker: I know you do not, but it is important.

Mr Slater: Also, politicians love to talk about hard-working family people. Equitable Life policyholders are hard-working family people and they are mostly hard-working family people who have worked for 40 years. Because of their age they have done their working lifetime and the Government is now treating them very badly.

Mr Newman: Could I add on to the map the dead and the infirm, and the infirmity because of old age. The Treasury says at paragraph 5.7 that they had received representations and our meeting should not be claims-based and an assessment of losses should be on a collective rather than individual basis. I think the impact of that paper is totally unreasonable. It does not discuss or consider the rationale for dismissing these views, it does not consider it any further. It just does nothing. It does not inform. Sir John has got no instructions about how to deal with those 30,000 claimants who have died. It has not thought through the fact that a lot of the claimants or potential claimants will not be able to claim because they are infirm or old and they cannot do the claim. I think that is just totally unreasonable of the Government's response.

Q77 Mr Walker: A final thing. I have to say that I was very impressed by the observations of my colleague, Kelvin Hopkins. I think it would be so much easier to say, "These are the policyholders, what they have lost. This is what we can afford to give them and we are just going to give them that money. We are not going to have intrusive investigations into their financial wherewithal. We are just going to do the right thing and we are going to do it quickly. We are not going to be able to give everyone every penny that they feel they are owed, but at least we can have a system that is fair and quickly executed for the benefit of those people".

Mr Slater: This is precisely what EMAG recommended to the Parliamentary Ombudsman. We said, "We understand about the public purse, we understand about responsibilities". If, in its wisdom, Parliament said, "We can only afford X", then for goodness sake say, "X is what we can afford", give it to the tribunal which the Parliamentary Ombudsman has recommended be set up and let them divvy it up between the policyholders. That is perfectly doable within two years. What the Government has suggested is not doable at all.

Q78 Mr Prentice: A lot is riding on Sir John Chadwick and let me read back to you what you said in your memorandum to us: "Sir John owes no duty to Parliament and reports privately to the Treasury. He is not required to hear representations from interested parties. Parliament has no control over the timing of his work". That is kind of - my words - open-ended, but ministers have told us that they will report back to Parliament on Sir John's work. Are you going to make representations directly to Sir John? You are not?

Mr Newman: We have not been approached by Sir John. We are in exactly the same position as Charles Thomson of Equitable. We have not heard anything. Our telephone lines and letterboxes are open. I would like to be invited to make representations and, if invited, I would indeed.

Q79 Mr Prentice: With all this paperwork I cannot find a reference to it but, given that ministers have promised to give regular progress reports to Parliament on what Sir John is up to, you could get in touch with Sir John and you could say that you would find it useful if Sir John were to report back on A, B, C and D when invited by ministers to.

Mr Slater: I think what we need to do is to compare what I call the "Chadwick process" with what your Committee recommended. Your Committee followed what the Parliamentary Ombudsman said and what she said was that the process should be ---

Q80 Mr Prentice: Transparent and independent.

Mr Slater: Transparent, independent and so on, and it is not any of those things.

Q81 Mr Prentice: We are where we are. No, I understand that. That is why I am asking the question.

Mr Slater: Our first response to Sir John Chadwick will be to tell him to think again about whether it is an appropriate job for him to do. He is acting as the Treasury's hired hand. The Treasury is perfectly entitled to have an adviser of great eminence, but it is not entitled to present an ex-Appeal Court judge to give it a judicial veneer to what is really a very downmarket, back street process. In Sir John's court the accused is going to be giving the judge instructions. What sort of a court is that? The accused appointed the judge.

Q82 Mr Prentice: There is a headline in there somewhere, I know. We understand the process, that Sir John has been invited by Government, it is purely advisory, Sir John is going to make his recommendations to ministers and ministers are going to decide, there is no secret about that. I am not going to labour the point.

Mr Slater: That is the point we want to make. The point we want to make very much is the Treasury has been convicted on five counts of maladministration. Now it has appointed its own judge to hear its appeal in private at a time and place and in a manner of its own choosing. Please quote me on that one.

Q83 Chairman: In a sense we had the conversation with the Ombudsman about whether she would have preferred to have had all her findings accepted but for the Government to say, "I am afraid there is no money in the kitty. We can't do anything about it". Your perspective is different.

Mr Slater: Not very different. We understand that the public purse is not entirely open-ended. If the Government of the day says, "We can't afford this", that is something it can say, but it ought to do it openly and honestly, not in some backstairs alleged court.

Q84 Chairman: The point of the question is to say that the Government could have said, "We accept what the Ombudsman says, but the public purse is such that we cannot set up any kind of compensation scheme". In a sense they have done better than that, have they not? They have said, "Well, we do accept that there is the basis for some kind of compensation scheme. We need to take some advice on exactly what it means and we would like to help those people who have been disproportionately impacted by what happened". That is not a contemptible position, is it? It is better than it might have been if they had dismissed it out of hand or would you have preferred that?

Mr Slater: I think we would rather that the Government had been honest about it and stood up and said, "We are not going to pay", because in those circumstances in not a very long time the voters will be able to express their view on this Government.

Q85 Chairman: You would rather have had no scheme at all than a limited scheme?

Mr Slater: I did not say no scheme. I said that I would rather the Government stood up and said how much it was prepared to pay.

Q86 Chairman: In terms of this question, the choice was between whether you wanted the Government to say, "We accept what has been said, but we can't fund any kind of compensation scheme, I am afraid, and that is the public policy and public purse position". They have said, "We will try and set up a scheme but it has to be a scheme that is limited in its impact".

Mr Newman: Also, Chairman, we look to Parliament to protect us. We look to this Committee and Members of Parliament to protect us and to right the wrong, so the Government has to set the process in Parliament. I hate to tell people what their job is; I think Parliament should actually see the wrong and try to right it. It is Parliament's prerogative to do that and that is where we are appealing to.

Q87 Chairman: Mr Braithwaite?

Mr Braithwaite: You use the word "compensation". I think you will find from the notes of 15 January that Yvette Cooper did not use the word "compensation". Command Paper 7538 does not use the word "compensation" very carefully. I have a perspective on this which is that the Parliamentary Ombudsman was a wonderful invention 30 years ago and I think it is very regrettable how far we have come from that concept such that this document had to be written in legalese, we have moved away from natural justice. I was horrified when I sat through the adjournment debate on Tuesday to hear MPs say, "EMAG must bring a judicial review". She is your Parliament and really you have to stand up for her. I thought that she displayed an amazing cerebral evenness when she said that she did not think the Government had been malevolent. I am rather partisan in this, though I would not ever be a prospective recipient of any payment, but I have been at this coalface for eight years, so forgive me if I do seem partisan. Yes, I do think there has been malevolence. There was a disparity between the way it was presented to you, as MPs, in the statement and what was released later. It is quite apparent that this has been delayed over and over again by the Government. This was surfaced as a problem in 2001 and now everybody seems to be accepting, "Oh, we haven't got any money at the moment", but we had money for the banks and we had money a couple of years ago for the occupational pensioners, there were only 125,000 of those. We have got ten times as many people here, yet we are pleading the public purse and poverty. Having attended all of these evidence sessions, I was most impressed by Tom Windsor who said that, "Justice at the discretion of ministers is not justice. There is a very high probability that justice will be denied simply because ministers do have the discretion. A right without a remedy is not a right at all, it is just a statement of honourable intent". Yes, I am rather passionate about MPs' needs to stand up against the Chadwick process and to make the Government think again and honour the extremely sensible proposal of the tribunal.

Q88 Chairman: Is the conclusion from that you think people should simply walk away from the process that has been described?

Mr Braithwaite: Yes.

Q89 Chairman: Is that going to be EMAG's position?

Mr Newman: We await this Committee's consideration. We are asking you to continue the work you have done and we would like to see what happens on that one. After that there are time limits, there are steps we will take, but we will go on. This is wrong and it needs righting.

Q90 Chairman: I am trying to find out what your take is on where we are at because obviously the Ombudsman made a report, we examined the Ombudsman's report and made our report. The Government has produced a response which accepts some things and does not accept others and says there will be a limited compensation scheme. Gordon said we are where we are. I am trying to find out whether you think the priority is to overthrow what the Government has now said is to be the process or to engage with that process and try and make some sense of it.

Mr Newman: The answer is very simple. The response made in the House of Commons is inadequate. They need to think again. It is unreasonable and inadequate. If you like, I can go through plenty more reasons why I consider it unreasonable and the Command Paper in itself is unreasonable.

Q91 Chairman: I think we understand that.

Mr Braithwaite: The Ombudsman made the point to you that she is considering issuing a subsequent report under 10(3) of the Parliamentary Commissioner Act. Looking back at this, that has only happened four times in the entire history of the Ombudsman. Two of them have been under your regime: the Japanese interned and the second was the occupational pensioners. It seems to me indicative that in a 30-year history in the first 25 years there were only two necessary times for that report to be written and we are now looking at the possibility of a third in four years which says to me that this Government is seemingly contemptuous and seeking to undermine the role of the Ombudsman. We have spent four years working with the Ombudsman. Our reason was to seek compensation. We have lives that we could have been getting on with and to turn around and say, "Oh, well, we don't think there should be any compensation ever for negligence or failure in regulation", is caveat emptor. I do wish I had known that ten or 20 years ago. As the Ombudsman herself said, the actual regulatory regime, particularly post-July 1994 when we were the first European state to adopt the Third Life Directive, and the requirements under statutory duties on our regulators were very arduous. There were no defects in the powers that they could and should have proactively used.

Q92 David Heyes: I think we have probably exhausted it, I was going to ask questions about really where does EMAG go from here. That has been answered more or less. Clearly, there is further life in the Parliamentary process, but not much. There are things that might flow from the report that this Committee produces that might bring additional pressure to bear on the Government, but it seems to me that we are probably very near the end of the line as far as what Parliament can achieve to bring about a drastic change of mind on the part of the Government. If that is the case, if that pessimistic view is right, then the focus is back on EMAG for what you do next. Can you expand on that? The possibility of legal action must be on your agenda.

Mr Braithwaite: The ball is in your court. It should not be down to us to invoke expensive British legal systems, that is why the ombudsman system was set up as an alternative dispute resolution mechanism.

Mr Newman: When the whistle is blown at half-time we will go into the changing room and have a discussion, we will wait and then we are going to go for the second half.

Q93 David Heyes: You are keeping your powder dry.

Mr Newman: The manager and other people, whoever it is, will talk to us and we will come back and we are going to win the second half. If we can go to more popular psychology, the apology was a Jonathan Ross apology.

Q94 Chairman: I think we might retire to the dressing room at this point. I think we have illuminated the issue enough and you have been very, very helpful. Mr Slater, your analysis of the implications of what has been said was extremely helpful to us.

Mr Slater: Thank you.

Mr Newman: Could we thank you again.

Q95 Chairman: We operate in an environment where we spend a lot of our time trying to persuade the Government of things. On this front, as on other fronts, the Government does not always listen to us. Our job, I think, in this case is, yes, to revisit the basis upon which the Government has said what it has said, but also in fairness to try to interrogate what it has said about what will now happen and see if we can bring more light to bear on that. I think on both those fronts we should have something more to say, but thank you very much for coming along again this morning.

Mr Newman: Thank you.